TITLE POTPOURRI. Presented by: Douglas G. Smith V.P. and Associate Sr. Underwriter April 23, 2013. SPLIT CLOSINGS. Marking up the commitment/policy exceptions. Seller’s Agent Record deed or get indemnity from Underwriter of disbursing agent if you turn over deed to seller’s title company.
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TITLE POTPOURRI Presented by: Douglas G. Smith V.P. and Associate Sr. Underwriter April 23, 2013
Marking up the commitment/policy exceptions • Seller’s Agent • Record deed or get indemnity from Underwriter of disbursing agent if you turn over deed to seller’s title company. • Do not mark-up commitment for buyer as you are not disbursing the proceeds (being done by disbursing agent/lender’s title company). A marked-up commitment would act as an indemnity under the Mutual Indemnity Agreement. • Do not remove gap exception (Definition of gap: time frame between the date of the commitment and the date the vesting instrument is recorded).
Marking up the commitment/policy exceptions • Seller’s Agent, cont. • Review title before issuing policy to determine whether the deed and discharges of mortgages/liens have been recorded. • Wait for either the mortgages/monetary liens to be discharged before issuing owner’s policy or issue policy with exceptions for all open matters. • Take exception to all gap matters, if any on policy. • Note: If the disbursing agent/lender’s title company is issuing a Stewart commitment, get a copy of the title company’s HUD showing the items paid for, or marked-up commitment showing the items deleted and you may then provide gap coverage for the buyer and issue the policy free of the monetary liens.
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • Covers land upon which is located a one-to-four family residence. Neither vacant nor commercial property is eligible to receive this product. The product can be used for recreational or investment property if owned by a “Natural Person”. • The insured must be a “Natural Person” (a human being and not a commercial or legal organization or entity). Natural person includes a trustee of a trust.
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • Don’t provide product for recent construction (sale from the builder). [See affirmative coverage provision #18.] • Policy date is shown as the date of closing, though this product provides gap coverage. You must therefore close the transaction before you can provide the product, or you take exception to gap matters when you issue the policy.
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • There are 32 some coverage provisions included in the jacket. • This is a more expensive product than the ALTA Owner’s Policy. Purchase Agreement should probably contemplate that this product is to be utilized specifically before issuance. [Was notice provided to the customers that a less expensive product was available…class action law suits are made of such issues.]
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • There are various differences between the ALTA Owner’s Policy and the Homeowner’s Policy: • Insures actual vehicular and pedestrian access. ALTA Owner’s insures “record” access. • Provides maximum dollar limit of liability and deductibles (like casualty insurance) over certain matters of coverage such as: • #16 – violation of subdivision laws or regulations; • #18 – forced to remove or remedy your existing structure because structure was built without obtaining a building permit from the proper government office (new construction problem); • #19 – forced to remove or remedy your existing structure because they violate an existing zoning law or regulation; • #21 – forced to remove or remedy your existing structure because the structures encroach onto your neighbor’s land [casualty coverages].
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • Differences between the Owner’s and Homeowner’s Policy, continued: • Coverage for your neighbors’ structures encroaching onto your land. • Coverage for your existing structures which encroach into easements or setbacks. • Coverage for damage to the land as a result of future exercise of a right of others to extract or develop mineral interests. • Retroactive reassessment of taxes because of construction or a change in ownership unless excepted in Schedule B. Be sure to use the Stewart Title tax exception. See bulletin MI2009006. • The residence with the address shown on Schedule A is not located upon the land [Location endorsement].
Homeowner’s Policy of Title Insurance for 1-4 family residence (revised 2/3/10) • Schedule A provides that Covered Risk 16, 18, 19 and 21 have deductible amounts and varying maximum coverage up to $25,000.00. • Schedule B is set up the same for specific exceptions though it is preferable to get an Owner’s Affidavit or Estoppel and remove the pre-printed exceptions in Schedule B. Showing them creates an ambiguity in the coverage which is inconsistent with the design of the Homeowner’s Policy of Insurance to cover the matters addressed in the pre-printed standard exceptions. • A survey is not required to provide survey coverage on the Homeowner’s policy.
Gap Coverage on Owner’s Policies and Instant Owner’s Policies • ALTA Owner’s policy (6-17-06), ALTA Loan Policy (6-17-06) and Short Form Loan Policy (rev. 12-03-12) all have equivalent of the following affirmative coverage language: • Any defect in or lien or encumbrance on the Title or other matter included in Covered Risks 1 through __ that has been created or attached or has been filed or recorded in the Public Records subsequent to Date of Policy and prior to the recording of the Insured Mortgage (or deed or other instrument of transfer) in the Public Records. [Corollary of the gap exception]. • This constitutes automatic “gap” coverage to the insured. • However, we have also automatically included a “gap” exception in Schedule B of the Commitment.
Gap Coverage on Owner’s Policies and Instant Owner’s Policies • Continued… • To engage the jacket coverage provision, we have to close the transaction and mark-up the commitment by crossing out or marking “deleted” next to the gap exception at closing. • If we do not close the transaction (also see “Split Closings”) you do not mark-up the commitment; you perform a review of title prior to the issuance of the policy and you take exception to all matters coming on in the gap period. • On Short Form Loan Policies, you don’t have to use the historic “formula” for the policy date: “Date of closing or the date in which the mortgage is recorded, whichever is later.” Just put in the date of closing because the gap coverage is already provided in the jacket. [YOU MUST CLOSE THE TRANSACTION]
Gap Coverage on Owner’s Policies and Instant Owner’s Policies • Continued… • On instant owner’s policies (policies issued at closing), you don’t have to use the formula anymore: “Date of closing or the date in which the deed vesting title in the insured is recorded, whichever is later.” Just put in the date of closing because the gap coverage is already provided in the jacket. [YOU MUST CLOSE THE TRANSACTION] • Interestingly this automatic gap coverage provision is neither present in the Homeowner’s Policy of Title Insurance nor the Expanded Coverage Residential Loan Policy.
New ALTA Forms • U.S. Policy Form 9-28-91, Revised 12-03-12 • Merely adds creditor’s rights protection for prior conveyances equivalent to the ALTA Owner’s Policy paragraph #9. • Short Form Residential Loan Policy One-to-Four Family, Revised 12-03-12. • Adds another “check the box” endorsement 30-06 Shared Appreciation. • Adds additional coverage language in exception #4 of Schedule B for “other subsurface substances.”
New ALTA Forms • ALTA Endorsement 32.2-06 (Construction Loan – Loss of Priority – Insured’s Direct Payment) Adopted 8-1-12 • Requires direct disbursement from the lender to the trades: does not cover 2nd or 3rd tier claimants. • Stewart doesn’t use the ALTA 32-06 series of construction endorsements but rather its own pending disbursement clause and the Construction Loan Disbursement Endorsement E-3583. • Endorsement 37-06 (Assignment of Rents or Leases) Adopted 12-03-12 • Endorsement 38-06 (Mortgage Tax) Adopted 12-03-12 • NOTE: Stewart Title will be sending out a Bulletin instructing its Agents to begin using the new forms shortly.
Thank you for attending! Questions?? Please contact: Doug Smith firstname.lastname@example.org 734-469-9461 800-221-8710 ext. 9461